Puerto Rico on Friday presented a plan to creditors that asks them to take a deep discount on their debt - an aggregate of around 45 percent, two sources familiar with the situation said.
With a 45 percent poverty rate and exodus of people to the United States, Puerto Rico is trying to solve an economic crisis before it hits substantial debt payments in May and July. The U.S. territory has defaulted on some of its debt and is trying to persuade creditors to take concessions.
Under the plan unveiled Friday, four tranches of bonds would be exchanged into two new bonds with different structures.
Haircuts on the debt would differ according to which bonds are being exchanged and would reflect the current trading of those bonds, the sources said, with general obligation bonds getting the best treatment, followed by COFINA bonds, subordinated COFINA bonds and then other bonds which are supported by tax revenues.
The newly structured bonds would consist of a so-called base bond and a hope bond, the sources said.
The base bond would start paying interest in 2018 at 2 percent, rising to 5 percent in 2021 when it would also pay principal, the sources said. The hope bond would be based on a revenue formula with the aim of starting to pay out by 2026, one of the sources said. Some details of the bond exchange were reported by The Wall Street Journal earlier.
The plan is expected to be made public on Monday, the sources said.
(Reporting by Megan Davies and Nick Brown; Editing by Leslie Adler)